My Sex, Drugs and Rock & Roll Portfolio

By AnnaLisa Kraft - June 21, 2012 | Tickers: AAPL, CHD, PFE | 0 Comments

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Sex, drugs and rock and roll are never going away. The baby boomers are certainly playing the stocks that I will cover and the younger demographics are certainly using the products made by these companies. The choices may be obvious but they are also profitable..very profitable and not as risky as this headline would lead you to believe. These stocks put the Fun back in Fundamentals.

Good Clean Fun

For the sex component my choice is Church & Dwight (NYSE: CHD) a venerable company known for Arm & Hammer baking soda products now comprising toothpastes, kitty litter, detergent, air freshener, deodorant and of course, baking soda and many more household cleaning products. Many investors however may not know that it also manufactures Trojan condoms, home pregnancy and ovulation test kits and other pleasure enhancing products. There is also a specialty chemicals division.

Church & Dwight, founded in 1846, has had this fuddy-duddy image but savvy investors have seen the stock move from $36.78  to $54.59 this last year and it has been steadily keeping close to this 52 week high lately. The company is really giving Procter & Gamble a run for its money recently by coming up with new product lines like Simply Saline for nasal irritation and ever more interesting Trojan products. Procter & Gamble lowered next quarter forecasts just today on European woes, commodity costs and currency. Church & Dwight has been taking a competitive advantage by not passing so many of its costs onto the consumer and is gaining share as well as supermarket shelf space. They report again on July 29.

Let's get our minds out of the gutter and go to the meat of the matter. Their P/E is 24.47 with a market cap of 7.47 billion. Church & Dwight owns much of the space in kitty litter and home cleaning products, especially for those who prefer more natural products and certainly the baking soda and Trojans have brand recognition internationally. Personally, I like the way this company has performed this last year with revenues increasing  and a 1.8% dividend yield. This is just a classic All-American company that quietly innovates and delivers.

NOW FOR THE DRUGS

As for drugs look no further than Pfizer (NYSE: PFE), another All-American classic defensive stock famous for what else, Viagra. Its P/E is 18.35, higher than one would expect but it still has a pleasing 3.9% yield. It, too, has been flirting with 52 week highs, from its low of $16.63 to $23.30. The company is only three years younger than Church & Dwight, and has an impressive line of well known pharmaceutical and over-the-counter medications and even has a line of animal products, although it is planning to spin off the animal health business by July 2013. It recently sold its infant nutrition business to Nestle. This shows Pfizer's determination to stick to its knitting and concentrate on the core business: great drugs. It reports July 30.

For years Pfizer had been in the doldrums; it was a favorite whipping boy of the Wall Street crowd but now the tide has turned and defensives, especially big pharmas with yield, are all the rage again. Pfizer has always been mentioned as having a patent cliff problem, but they are constantly innovating and if one drug goes out the window another comes in through the lab door. Almost every day a new drug use is recommended or there is good news about another study in Phase 2 or 3 trials. Most recently, Pfizer's Prevnar, a vaccination, was recommended for doctors to give with the pneumococcal vaccine to people with weakened immune systems. Pfizer will continue to acquire, spin off or do whatever it takes to please its shareholders.

AND FINALLY ROCK AND ROLL

What else but Apple (NASDAQ: AAPL) fits this bill? A gimme to be sure, but Apple has revolutionized the distribution of music and all things cool. There should be a McDonald's style arch sculpture of giant earbuds with a sign saying how many iPods and iTunes sold outside Cupertino headquarters.

The youngest of my SDRR (sex, drugs and rock and roll) portfolio, Apple is the most revolutionary but still sports only a 14 PE and in March did announce a 2% dividend. Investors yawned since Apple has so much cash it could have thrown their way but you don't buy Apple for yield, you buy it for growth.

There is no retailer in the world like Apple. The stores make $5600 per square foot annually. Business schools will be teaching their principles for years. Hundreds of MBA theses about their innovations will be written to be read by no one. But the proof is the stock's rise from just $78 when it dived after a Steve Jobs' health confession to an all time high of $644 a few months ago. It has been treading around $550 to $580 since mid-April (except for a dip to the $530's when it was used as an ATM for Facebook purchasers) but today broke out above the 50 day moving average. Analysts still see a price target of over $700 which leaves plenty of upside. Many are calling for much more than that.

Apple reports July 16 and will probably run up and sell off after the initial boost after the report. Regardless, if an iPhone 5 and iPad with Siri are in stock for the upcoming holiday season, any summer slump will be long forgotten.

So, if you want to buy into this portfolio of innovating and well regarded stocks that are as All-American as sex, drugs and rock and roll you will find a very pleasing mix of growth, value and yield as well as being able to make some smirky double entendres about your positions. Have yourself some good clean fun with your profits this summer!

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